I received a message the other day from a friend, sharing some good news about an investment in Africa.  An agriculture company had just raised another round of venture funding; the company supports smallholder maize farmers. As I skimmed the e-mail, the name of the particular entrepreneur caught my eye.

I did a double-take. I remembered the guy and his business, which was not in maize cultivation business but in jatropha, you know, the miracle plant that was supposed to be at the front and center of bio-fuel in roughly 2005. I rummaged through my inbox, and sure enough, on June 16, 2006, there was a business plan from this (now) maize entrepreneur for a jatropha plantation.

At the time this business plan came into my inbox, Acumen Fund was not yet investing in energy solutions in the developing world. However, when we launched our Energy Portfolio in summer 2007, we had decided not to invest in jatropha for a variety of reasons: it is very capital intensive, there were uncertainty on the yields, and questions were abundant about how jatropha would affect land under cultivation for food.

In the case of jatropha, it seems to have failed to live up to the hype. Estimates on the plant’s scalability were wildly optimistic. Ironically, jatropha requires a massive amount of water to produce an adequate amount of oil; and cultivating jatropha in more fertile, irrigated environments makes the plant more susceptible to pests.

While some investors are still looking for ways to salvage jatropha’s potential in developing the next generation of enhanced seeds, it is doubtful that benefits will extend to farmers at the base of the pyramid. Smallholder farmers are unlikely to be able to compete with the ability of multinational plantations producing jatropha in its optimal conditions at scale.

We still have not heard back from the entrepreneur who approached us about his idea to build a jatropha plantation; however, we were glad to hear that a) we were right not to invest in this particular venture, and b) he was resilient enough to figure out a new model.

We think the decision made sense at the time, and by the shifts in the entrepreneur’s business model, it suggests that this was indeed the right choice. But I am left asking – what would happen if this entrepreneur hadn’t resurfaced in my inbox four years later? What lessons are we missing by not following the investments we decline?

The social investment sector is disadvantaged by the missing feedback loop of understanding what happens to the businesses in which we choose not to invest.  Unlike in traditional venture capital, where geography and more narrow industry segments often allow investors to track the deals they did not do, in the impact investing space, there is often too much coming and going to maintain a tight handle on the deals we pass on. (For a great example of a venture capital fund that has tracked businesses it has missed, see the Bessemer Ventures Anti-Portfolio)

If learning from failure is essential to our future success, what lessons does our field continue to miss as a result of not learning from the deals we did not do?

Brian Trelstad is Chief Investment Officer at Acumen Fund.

• Share/Bookmark

Tags: energy, investees, jatropha

This entry was posted on Monday, October 25th, 2010 at 5:45 am and is filed under Our World. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.